Sunday, January 14, 2007

eBay got taken on Skype

Carlo at TechDirt follows up on the Sept 2005 eBay acquisition of Skype, saying:

eBay's strategy for Skype has never been clear, and many of the things it touted in the deal -- like the ability for eBay sellers to put a Skype link in their listings, so potential buyers could easily call them -- haven't paid off.

While sales are expected to have tripled in 2006 to $195 million, that's still not enough of a money-spinner to validate the billions eBay dropped for the company. Skype faces a big challenge in converting users of its free services into paying customers.

Overall, eBay's strategy to build Skype's business remains as unclear today as it was when they said they were buying it.

See also my post, "eBay buys Skype", that I wrote at the time of the acquisition where I said, "That's one costly deal for eBay, an inflated purchase price to acquire a company that has little to do with e-commerce."

Update: For an opposing point of view, see Henry Blodget's post, "Analyzing Skype", where he claims that 2007 Skype revenues "should" approach $500M. If the 2005 purchase price is below x10 of 2007 revenues, Henry argues, it is "a far cry from the outrageous binge-buy that many commentators described."

Update: A few months later, Henry Blodget changes his mind, saying, "Skype has lost focus ... eBay ... has no strategic reason for owning the company. eBay should sell Skype ... and focus on its core commerce business."

Update: Nine months later, Rachel Konrad at the AP reports that "eBay takes $1.43B charge for Skype" and "$900 million will be ... impairment, essentially acknowledg[ing] that San Jose-based eBay, one of the world's largest e-commerce companies, drastically overvalued the $2.6 billion Skype acquisition."